UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Transcription

1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK FEDERAL HOUSING FINANCE AGENCY, AS CONSERVATOR FOR THE FEDERAL NATIONAL MORTGAGE ASSOCIATION AND THE FEDERAL HOME LOAN MORTGAGE CORPORATION, Plaintiff, CIV. ( ) COMPLAINT JURY TRIAL DEMANDED -against- NOMURA HOLDING AMERICA INC., NOMURA ASSET ACCEPTANCE CORPORATION, NOMURA HOME EQUITY LOAN, INC., NOMURA CREDIT & CAPITAL, INC., NOMURA SECURITIES INTERNATIONAL, INC., RBS SECURITIES INC. (f/k/a GREENWICH CAPITAL MARKETS, INC.), DAVID FINDLAY, JOHN MCCARTHY, JOHN P. GRAHAM, NATHAN GORIN, and N. DANTE LAROCCA, Defendants.

2 TABLE OF CONTENTS Page NATURE OF ACTION...1 PARTIES...5 The Plaintiff and the GSEs...5 The Defendants...6 The Non-Party Originators...9 JURISDICTION AND VENUE...9 FACTUAL ALLEGATIONS...10 I. The Securitizations...10 A. Residential Mortgage-Backed Securitizations In General...10 B. The Securitizations At Issue In This Case...11 C. The Securitization Process Nomura Credit Groups Mortgage Loans in Special Purpose Trusts The Trusts Issue Securities Backed by the Loans...13 II. Defendants Participation in the Securitization Process...16 A. The Role of Each of the Defendants Nomura Credit NAA NHELI Nomura Securities RBS Securities Nomura Holding The Individual Defendants...20 B. Defendants Failure To Conduct Proper Due Diligence...21 i

3 III. The Registration Statements and the Prospectus Supplements...24 A. Compliance With Underwriting Guidelines...24 B. Statements Regarding Occupancy Status of Borrower...27 C. Statements Regarding Loan-to-Value Ratios...29 D. Statements Regarding Credit Ratings...31 IV. Falsity of Statements in the Registration Statements and Prospectus Supplements...33 A. The Statistical Data Provided in the Prospectus Supplements Concerning Owner Occupancy and LTV Ratios Was Materially False Owner-Occupancy Data Was Materially False Loan-to-Value Data Was Materially False...35 B. The Originators of the Underlying Mortgage Loans Systematically Disregarded Their Underwriting Guidelines Investigations Have Confirmed That the Originators of the Loans in the Securitizations Systematically Failed to Adhere to Their Underwriting Guidelines The Collapse of the Certificates Credit Ratings Further Indicates that the Mortgage Loans Were Not Originated in Adherence to the Stated Underwriting Guidelines The Surge in Mortgage Delinquency and Default Further Demonstrates that the Mortgage Loans Were Not Originated in Adherence to the Stated Underwriting Guidelines...45 V. Fannie Mae s and Freddie Mac s Purchases of the GSE Certificates and the Resulting Damages...46 FIRST CAUSE OF ACTION...48 SECOND CAUSE OF ACTION...51 THIRD CAUSE OF ACTION...55 FOURTH CAUSE OF ACTION...58 FIFTH CAUSE OF ACTION...61 SIXTH CAUSE OF ACTION...64 ii

4 SEVENTH CAUSE OF ACTION...67 EIGHTH CAUSE OF ACTION...70 PRAYER FOR RELIEF...74 JURY TRIAL DEMANDED...75 iii

5 Plaintiff Federal Housing Finance Agency ( FHFA ), as conservator of The Federal National Mortgage Association ( Fannie Mae ) and The Federal Home Loan Mortgage Corporation ( Freddie Mac ), by its attorneys, Quinn Emanuel Urquhart & Sullivan, LLP, for its Complaint herein against Nomura Holding America Inc. ( Nomura Holding ), Nomura Asset Acceptance Corporation ( NAA ), Nomura Home Equity Loan, Inc. ( NHELI ), Nomura Credit & Capital, Inc. ( Nomura Credit ), Nomura Securities International, Inc. ( Nomura Securities ) (collectively, Nomura ), RBS Securities Inc. (f/k/a Greenwich Capital Markets, Inc.) ( RBS Securities ), and David Findlay, John McCarthy, John P. Graham, Nathan Gorin, and N. Dante Larocca (the Individual Defendants ) (together with Nomura and RBS Securities, Defendants ) alleges as follows: NATURE OF ACTION 1. This action arises out of Defendants actionable conduct in connection with the offer and sale of certain residential mortgage-backed securities to Fannie Mae and Freddie Mac (collectively, the Government Sponsored Enterprises or GSEs ). These securities were sold pursuant to registration statements, including prospectuses and prospectus supplements that formed part of those registration statements, which contained materially false or misleading statements and omissions. Defendants falsely represented that the underlying mortgage loans complied with certain underwriting guidelines and standards, including representations that significantly overstated the ability of the borrowers to repay their mortgage loans. These representations were material to the GSEs, as reasonable investors, and their falsity violates Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. 77a et seq., Sections (A)(ii) and (C) of the Virginia Code, Sections (a)(1)(B) and (c) of the District of Columbia Code, and constitutes common law negligent misrepresentation. 1

6 2. Between November 30, 2005 and April 30, 2007, Fannie Mae and Freddie Mac purchased over $2 billion in residential mortgage-backed securities (the GSE Certificates ) issued in connection with seven Nomura-sponsored securitizations. 1 The GSE Certificates purchased by Freddie Mac, along with date and amount of the purchases, are listed below in Table 10. The GSE Certificates purchased by Fannie Mae, along with date and amount of the purchases, are listed below in Table 11. The securitizations at issue are: i. Nomura Asset Acceptance Corporation, Mortgage Pass-Through Certificates, Series 2005-AR6 ( NAA 2005-AR6 ); ii. iii. iv. Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series 2006-FM1 ( NHELI 2006-FM1 ); Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series 2006-FM2 ( NHELI 2006-FM2 ); Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series 2006-HE3 ( NHELI 2006-HE3 ); v. Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series ( NHELI ); vi. Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series ( NHELI ); and vii. Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series ( NHELI ); (collectively, the Securitizations ). 3. The Certificates were offered for sale pursuant to one of three shelf registration statements (the Shelf Registration Statements ) filed with the Securities and Exchange Commission (the SEC ). Defendant NAA filed one Shelf Registration Statement that pertained 1 For purposes of this Complaint, the securities issued under the Registration Statements (as defined in note 2, below) are referred to as Certificates, while the particular Certificates that Fannie Mae and Freddie Mac purchased are referred to as the GSE Certificates. Holders of Certificates are referred to as Certificateholders. 2

7 to one Securitization at issue in this action. Defendant NHELI filed two Shelf Registration Statements that pertained to the remaining six Securitizations at issue in this action. The Individual Defendants signed one or more of the Shelf Registration Statements and the amendments thereto. 4. For each Securitization, a prospectus ( Prospectus ) and prospectus supplement ( Prospectus Supplement ) were filed with the SEC as part of the Registration Statement. 2 The GSE Certificates were marketed and sold to Fannie Mae and Freddie Mac pursuant to the Registration Statements, including the Shelf Registration Statements and the corresponding Prospectuses and Prospectus Supplements. 5. The Registration Statements contained statements about the characteristics and credit quality of the mortgage loans underlying the Securitizations, and the origination and underwriting practices used to make and approve the loans. These statements were material to a reasonable investor s decision to invest in mortgage-backed securities by purchasing the Certificates, and specifically to Fannie Mae s and Freddie Mac s investment decisions. Unbeknownst to Fannie Mae and Freddie Mac, these statements were materially false, as significant percentages of the underlying mortgage loans were not originated in accordance with the represented underwriting standards and origination practices, and had materially poorer credit quality than what was represented in the Registration Statements. 6. The Registration Statements also contained statistical summaries of the groups of mortgage loans in each Securitization, such as the percentage of loans secured by owneroccupied properties and the percentage of the loan group s aggregate principal balance with 2 The term Registration Statement as used herein incorporates the Shelf Registration Statement, the Prospectus and the Prospectus Supplement for each referenced Securitization, except where otherwise indicated. 3

8 loan-to-value ratios within specified ranges. This information also was material to reasonable investors. However, a loan-level analysis of a sample of loans for each Securitization a review that encompassed thousands of mortgages across all of the Securitizations has revealed that these statistics also were false and omitted material facts due to inflated property values and misstatements of other key characteristics of the mortgage loans. 7. For example, the percentage of owner-occupied properties is a material risk factor to the purchasers of Certificates, such as Fannie Mae and Freddie Mac, since a borrower who lives in a mortgaged property is generally less likely to stop paying his or her mortgage and more likely to take better care of the property. The loan-level review reveals that the true percentage of owner-occupied properties for the loans supporting the GSE Certificates was materially lower than what was stated in the Prospectus Supplements. Likewise, the Prospectus Supplements misrepresented other material factors, including the true value of the mortgaged properties relative to the amount of the underlying loans. 8. Defendants Nomura Securities (which was the lead underwriter and sold some of the GSE Certificates to the GSEs), RBS Securities (which was the lead underwriter and sold some of the GSE Certificates to Freddie Mac), NAA (which acted as the depositor in one of the Securitizations), NHELI (which acted as the depositor in six of the Securitizations), and the Individual Defendants (who signed the Registration Statements) are directly responsible for the misstatements and omissions of material fact contained in the Registration Statements because they prepared, signed, filed and/or used these documents to market and sell the Certificates to Fannie Mae and Freddie Mac. 9. Defendants Nomura Holding and Nomura Credit also are responsible for the misstatements and omissions of material fact contained in the Registration Statements by virtue 4

9 of their direction and control over Defendants Nomura Securities, NAA, and NHELI. Nomura Holding directly participated in and exercised dominion and control over the business operations of its wholly owned subsidiaries, Defendants Nomura Securities, NAA, and NHELI. Nomura Credit (the seller or sponsor) directly participated in and exercised dominion and control over the business operations of the depositors, Defendants NAA and NHELI. 10. Fannie Mae and Freddie Mac purchased over $2 billion of the Certificates pursuant to the Registration Statements filed with the SEC. The Registration Statements contained misstatements and omissions of material facts concerning the quality of the underlying mortgage loans, and the practices used to originate and underwrite such loans. As a result of Defendants misstatements and omissions of material fact, Fannie Mae and Freddie Mac have suffered substantial losses as the value of their holdings has significantly deteriorated. 11. FHFA, as Conservator of Fannie Mae and Freddie Mac, brings this action against Defendants for violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. 77k, 77l(a)(2), 77o, Sections (A)(ii) and (C) of the Virginia Code, Sections (a)(1)(B) and (c) of the District of Columbia Code, and for common law negligent misrepresentation. PARTIES The Plaintiff and the GSEs 12. The Federal Housing Finance Agency is a federal agency located at 1700 G Street, NW in Washington, D.C. FHFA was created on July 30, 2008 pursuant to the Housing and Economic Recovery Act of 2008 ( HERA ), Pub. L. No , 122 Stat (2008) (codified at 12 U.S.C. 4617), to oversee Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. On September 6, 2008, under HERA, the Director of FHFA placed Fannie Mae and Freddie Mac into conservatorship and appointed FHFA as conservator. In that capacity, FHFA 5

10 has the authority to exercise all rights and remedies of the GSEs, including but not limited to, the authority to bring suits on behalf of and/or for the benefit of Fannie Mae and Freddie Mac. 12 U.S.C. 4617(b)(12). 13. Fannie Mae and Freddie Mac are government-sponsored enterprises chartered by Congress with a mission to provide liquidity, stability, and affordability to the United States housing and mortgage markets. As part of this mission, Fannie Mae and Freddie Mac invested in residential mortgage-backed securities. Fannie Mae is located at 3900 Wisconsin Avenue, NW in Washington, D.C. Freddie Mac is located at 8200 Jones Branch Drive in McLean, Virginia. The Defendants 14. Defendant Nomura Holding is a Delaware corporation with its principal place of business at 2 World Financial Center, New York, New York Nomura Holding is the American branch of the Japanese investment banking and securities firm Nomura Securities Co., Ltd. Nomura Holding s wholly owned subsidiaries include Defendants Nomura Credit, NAA, NHELI, and Nomura Securities. 15. Defendant Nomura Credit is a Delaware corporation with its principal place of business at 2 World Financial Center, New York, New York Nomura Credit is a wholly owned subsidiary of Nomura Holding. Nomura Credit acted as the seller/sponsor for all seven Securitizations. 16. Defendant NAA is a Delaware corporation with its principal place of business at 2 World Financial Center, New York, New York NAA is a wholly owned subsidiary of Nomura Holding and an affiliate of Nomura Credit. NAA was the depositor for one Securitization. As depositor, NAA was responsible for preparing and filing reports required under the Securities Exchange Act of

11 17. Defendant NHELI is a Delaware corporation with its principal place of business at 2 World Financial Center, New York, New York NHELI is a wholly owned subsidiary of Nomura Holding and an affiliate of Nomura Credit. NHELI was the depositor for the remaining six Securitizations. As depositor, NHELI was responsible for preparing and filing reports required under the Securities Exchange Act of Defendant Nomura Securities is a New York corporation with its principal place of business at 2 World Financial Center, New York, New York It is registered with the SEC as a broker-dealer. Nomura Securities is a wholly owned subsidiary of Nomura Holding and an affiliate of NAA and NHELI. Nomura Securities was the lead or co-lead underwriter for three Securitizations (NAA 2005-AR6, NHELI 2006-FM1, and NHELI 2006-FM2), and was intimately involved in the offerings. Fannie Mae and Freddie Mac purchased the GSE Certificates from Nomura Securities in its capacity as underwriter for two Securitizations. 19. Defendant RBS Securities is a Delaware corporation with its principal place of business at 600 Washington Boulevard, Stanford, Connecticut It is registered with the SEC as a broker-dealer. Prior to April 2009, RBS Securities was known as Greenwich Capital Markets, Inc. ( Greenwich ). Operating as Greenwich, RBS Securities was the lead or co-lead underwriter for four Securitizations (NHELI 2006-FM2, NHELI 2006-HE3, NHELI , and NHELI ), and was intimately involved in the offerings. Freddie Mac purchased the GSE Certificates from Greenwich (now RBS Securities) in its capacity as underwriter for these four Securitizations. 20. Defendant N. Dante Larocca is an individual residing in Manhasset, New York. From 2001 to 2008, he was a Managing Director at Nomura Securities. Mr. Larocca also was President and Chief Executive Officer of NHELI. Mr. Larocca signed two Shelf Registration 7

12 Statements (applicable to six Securitizations) and the amendments thereto, and, upon information and belief, did so in New York. 21. Defendant David Findlay is an individual residing in Greenwich, Connecticut and working in New York, New York. Mr. Findlay was a Senior Managing Director and the Chief Legal Officer of Nomura Holding and Nomura Securities. Mr. Findlay served as a Director of both NAA and NHELI. He signed or authorized another to sign on his behalf all three Shelf Registration Statements and the amendments thereto, and, upon information and belief, did so in New York. 22. Defendant Nathan Gorin is an individual residing in Syosset, New York and working in New York, New York. Mr. Gorin was Controller and Chief Financial Officer of Nomura Securities from 2004 to He also was the Controller and Chief Financial Officer of both NAA and NHELI. Mr. Gorin signed or authorized another to sign on his behalf all three Shelf Registration Statements and the amendments thereto, and, upon information and belief, did so in New York. 23. Defendant John P. Graham is an individual residing and working in New York, New York. Mr. Graham was a Managing Director at Nomura Credit. Mr. Graham also was the President and Chief Executive Officer of NAA. Mr. Graham signed or authorized another to sign on his behalf one Shelf Registration Statement (applicable to one Securitization) and the amendment thereto, and, upon information and belief, did so in New York. 24. Defendant John McCarthy was a Director of both NAA and NHELI. Mr. McCarthy signed or authorized another to sign on his behalf all three Shelf Registration Statements and the amendments thereto, and, upon information and belief, did so in New York. 8

13 The Non-Party Originators 25. For each Securitization, the loans underlying the Certificates were acquired by Nomura Credit (the sponsor) from non-party mortgage originators. The non-party originators principally responsible for the loans underlying the Certificates include Fremont Investment & Loan ( Fremont ), Ownit Mortgage Solutions, Inc. ( Ownit ), ResMAE Mortgage Corp. ( ResMAE ), People s Choice Home Loan, Inc. ( People s Choice ), and Silver State Mortgage and Silver State Financial Services (d/b/a Silver State Mortgage) ( Silver State ). JURISDICTION AND VENUE 26. Jurisdiction of this Court is founded upon 28 U.S.C. 1345, which gives federal courts original jurisdiction over claims brought by FHFA in its capacity as conservator of Fannie Mae and Freddie Mac. 27. Jurisdiction of this Court also is founded upon 28 U.S.C because the Securities Act claims asserted herein arise under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, 15 U.S.C. 77k, 77l(a)(2), 77o. This Court further has jurisdiction over the Securities Act claims pursuant to Section 22 of the Securities Act of 1933, 15 U.S.C. 77v. 28. This Court has jurisdiction over the statutory claims of violations of Sections (A)(ii) and (C) of the Virginia Code and Sections (a)(1)(B) and (c) of the District of Columbia Code, pursuant to this Court s supplemental jurisdiction under 28 U.S.C. 1367(a). This Court also has jurisdiction over the common law claim of negligent misrepresentation pursuant to this Court s supplemental jurisdiction under 28 U.S.C. 1367(a). 29. Venue is proper in this district pursuant to Section 22 of the Securities Act of 1933, 15 U.S.C. 77v, and 28 U.S.C. 1391(b). The Nomura Defendants are all located in this district, most of the Individual Defendants reside and/or work in this district, and many of the 9

14 acts and transactions alleged herein, including the preparation and dissemination of the Registration Statements, occurred in substantial part within this district. Additionally, the GSE Certificates were actively marketed and sold from this district. Defendants also are subject to personal jurisdiction in this district. FACTUAL ALLEGATIONS I. The Securitizations A. Residential Mortgage-Backed Securitizations In General 30. Asset-backed securitization distributes risk by pooling cash-producing financial assets and issuing securities backed by those pools of assets. In residential mortgage-backed securitizations, the cash-producing financial assets are residential mortgage loans. 31. The most common form of securitization of mortgage loans involves a sponsor the entity that acquires or originates the mortgage loans and initiates the securitization and the creation of a trust, to which the sponsor directly or indirectly transfers a portfolio of mortgage loans. The trust is established pursuant to a Pooling and Servicing Agreement entered into by, among others, the depositor for that securitization. In many instances, the transfer of assets to a trust is a two-step process: the financial assets are transferred by the sponsor first to an intermediate entity, often a limited purpose entity created by the sponsor... and commonly called a depositor, and then the depositor will transfer the assets to the [trust] for the particular asset-backed transactions. Asset-Backed Securities, Securities Act Release No , Exchange Act Release No , 84 SEC Docket 1624 (Dec. 22, 2004). 32. Residential mortgage-backed securities are backed by the underlying mortgage loans. Some residential mortgage-backed securitizations are created from more than one cohort of loans called collateral groups, in which case the trust issues securities backed by different groups. For example, a securitization may involve two groups of mortgages, with some 10

15 securities backed primarily by the first group, and others primarily by the second group. Purchasers of the securities acquire an ownership interest in the assets of the trust, which in turn owns the loans. Within this framework, the purchasers of the securities acquire rights to the cashflows from the designated mortgage group, such as homeowners payments of principal and interest on the mortgage loans, held by the related trust. 33. Residential mortgage-backed securities are issued pursuant to registration statements filed with the SEC. These registration statements include prospectuses, which explain the general structure of the investment, and prospectus supplements, which contain detailed descriptions of the mortgage groups underlying the certificates. Certificates are issued by the trust pursuant to the registration statement and the prospectus and prospectus supplement. Underwriters sell the certificates to investors. 34. A mortgage servicer is necessary to manage the collection of proceeds from the mortgage loans. The servicer is responsible for collecting homeowners mortgage loan payments, which the servicer remits to the trustee after deducting a monthly servicing fee. The servicer s duties include making collection efforts on delinquent loans, initiating foreclosure proceedings, and determining when to charge off a loan by writing down its balance. The servicer is required to report key information about the loans to the trustee. The trustee (or trust administrator) administers the trust s funds and delivers payments due each month on the certificates to the investors. B. The Securitizations At Issue In This Case 35. This case involves the seven Securitizations listed in Table 1 below. Nomura served as the depositor and therefore the issuer and offeror of the Certificates for the seven Securitizations. Nomura also served as the sponsor for the seven Securitizations. In two of the Securitizations, Nomura served as the lead underwriter and sold the GSE Certificates to the 11

16 GSEs. For each GSE Certificate, Table 1 identifies: (1) the sponsor; (2) the depositor; (3) the lead underwriter; (4) the principal amount issued for the tranches 3 purchased by the GSEs; (5) the date of issuance; and (6) the loan group backing the GSE Certificate for that Securitization (referred to as the Supporting Loan Groups ). Table 1 Transaction Tranche Sponsor Depositor NAA AR6 NHELI FM1 IIIA1 IA Nomura Credit Nomura Credit NAA NHELI. Lead Underwriter Nomura Securities Nomura Securities Principal Amount Issued ($) Date of Issuance Supporting Loan Group $64,943,000 11/30/2005 Group III $309,550,000 1/30/2006 Group I NHELI FM2 IA1 Nomura Credit NHELI Greenwich (now RBS Securities) $525,197,000 10/31/2006 Group I NHELI HE3 IA1 Nomura Credit NHELI Greenwich (now RBS Securities), Nomura Securities $441,739,000 8/31/2006 Group I NHELI II1A Nomura Credit NHELI Greenwich (now RBS Securities) $100,548,000 1/31/2007 Group II-1 NHELI IA1 Nomura Credit NHELI Greenwich (now RBS Securities) $358,847,000 1/31/2007 Group I NHELI IA1 Nomura Credit NHELI Lehman Brothers Inc. $245,105,000 4/30/2007 Group I C. The Securitization Process 1. Nomura Credit Groups Mortgage Loans in Special Purpose Trusts 36. As the sponsor for the Securitizations, Nomura Credit purchased the mortgage loans underlying the Certificates after the loans were originated, either directly from the originators or through affiliates of the originators. 37. Nomura Credit then sold the mortgage loans to one of two depositors, both of which are Nomura-affiliated entities: NAA and NHELI. 3 A tranche is one of a series of certificates or interests created and issued as part of the same transaction. 12

17 38. NAA and NHELI were wholly owned, limited-purpose, indirect subsidiaries of Nomura Holding, and affiliates of Nomura Credit. The sole purpose of NAA and NHELI as depositors was to act as conduits through which loans acquired by the sponsor could be securitized and sold to investors. 39. As depositors for the Securitizations, NAA and NHELI transferred the relevant mortgage loans to the trusts, pursuant to Pooling and Servicing Agreements (the PSAs ) that contained various representations and warranties regarding the mortgage loans for the Securitizations. 40. As part of each of the Securitizations, the trustee, on behalf of the Certificateholders, executed the PSA with the relevant depositor and the parties responsible for monitoring and servicing the mortgage loans in that Securitization. The trust, administered by the trustee, held the mortgage loans pursuant to the related PSA and issued Certificates, including the GSE Certificates, backed by such loans. The GSEs purchased the GSE Certificates, through which they obtained an ownership interest in the assets of the trust, including the mortgage loans. 2. The Trusts Issue Securities Backed by the Loans 41. Once the mortgage loans were transferred to the trusts in accordance with the PSAs, each trust issued Certificates backed by the underlying mortgage loans. The Certificates were then sold to investors like Fannie Mae and Freddie Mac, which thereby acquired an ownership interest in the assets of the corresponding trust. Each Certificate entitles its holder to a specified portion of the cashflows from the underlying mortgages in the Supporting Loan Group. The level of risk inherent in the Certificates was a function of the capital structure of the related transaction and the credit quality of the underlying mortgages. 13

18 42. The Certificates were issued pursuant to one of three Shelf Registration Statements filed with the SEC on a Form S-3 and amended by one or more Forms S-3/A filed with the SEC. Each Individual Defendant signed, or authorized another to sign on his behalf, one or more of the Shelf Registration Statements, including any amendments thereto, which were filed by NAA or NHELI. The SEC filing number, registrants, signatories, and filing dates for the three Shelf Registration Statements and amendments thereto, as well as the Certificates covered by each Shelf Registration Statement, are reflected in Table 2 below. Table 2 SEC File Number Date Registration Statement Filed Date(s) Amended Registration Statements Filed Registrant(s) Covered Certificates /22/2005 8/8/2005 NAA NAA 2005-AR /7/2005 7/8/2005 NHELI NHELI 2006-FM1 Signatories of Registration Statement David Findlay, Shunichi Ito, John McCarthy, John P. Graham, Nathan Gorin David Findlay, Shunichi Ito, John McCarthy, N. Dante Larocca, Nathan Gorin Signatories of Amendments David Findlay, Shunichi Ito, John McCarthy, John P. Graham, Nathan Gorin David Findlay, Shunichi Ito, John McCarthy, N. Dante Larocca, Nathan Gorin /28/2006 4/6/2006; 4/13/2006 NHELI NHELI FM2; NHELI 2006-HE3; NHELI ; NHELI ; NHELI David Findlay, Shunichi Ito, John McCarthy, N. Dante Larocca, Nathan Gorin David Findlay, Shunichi Ito, John McCarthy, N. Dante Larocca, Nathan Gorin 43. The Prospectus Supplement for each Securitization describes the underwriting guidelines that purportedly were used in connection with the origination of the underlying mortgage loans. In addition, the Prospectus Supplement purports to provide accurate statistics regarding the mortgage loans in each group, including the ranges of and weighted average FICO credit scores of the borrowers, the ranges of and weighted average loan-to-value ratios of the loans, the ranges of and weighted average outstanding principal balances of the loans, the debt- 14

19 to-income ratios, the geographic distribution of the loans, the extent to which the loans were for purchase or refinance purposes, information concerning whether the loans were secured by a property to be used as a primary residence, second home, or investment property, and information concerning whether the loans were delinquent. 44. The Prospectus Supplement associated with each Securitization was filed with the SEC as part of the Registration Statement. A Form 8-K attaching the PSA for each Securitization also was filed with the SEC. The date on which the Prospectus Supplement and Form 8-K were filed for each Securitization, as well as the filing number of the Shelf Registration Statement related to each, are set forth in Table 3 below. Table 3 Transaction Date Prospectus Supplement Filed Date Form 8-K Attaching PSA Filed Filing No. of Related Registration Statement NAA 2005-AR6 11/30/ /20/ NHELI 2006-FM1 1/31/2006 4/11/ NHELI 2006-FM2 10/31/ /8/ NHELI 2006-HE3 8/30/2006 9/12/ NHELI /31/2007 3/9/ NHELI /1/2007 4/13/ NHELI /1/2007 5/31/ The Certificates were issued pursuant to the PSAs, and Defendants Nomura Securities and Greenwich (now RBS Securities) offered and sold the GSE Certificates to Fannie Mae and Freddie Mac pursuant to the Registration Statements, which, as noted previously, included the Prospectuses and Prospectus Supplements. 4 4 Nomura Securities was the selling underwriter for two of the Securitizations, and Greenwich was the selling underwriter for four of the Securitizations. For the remaining Securitization, the selling underwriter was a non-party. The selling underwriter for each Securitization is reflected in Tables 10 and 11, below at paragraphs 129 and

20 II. Defendants Participation in the Securitization Process A. The Role of Each of the Defendants 46. Each of the Defendants, including the Individual Defendants, had a role in the securitization process and the marketing for most or all of the Certificates, which included purchasing the mortgage loans from the originators, arranging the Securitizations, selling the mortgage loans to the depositor, transferring the mortgage loans to the trustee on behalf of the Certificateholders, underwriting the public offering of the Certificates, structuring and issuing the Certificates, and marketing and selling the Certificates to investors such as Fannie Mae and Freddie Mac. 47. With respect to each Securitization, the depositor, underwriters, and Individual Defendants who signed the Registration Statement, as well as the Defendants who exercised control over their activities, are liable, jointly and severally, as participants in the registration, issuance, and offering of the Certificates, including issuing, causing, or making materially misleading statements in the Registration Statement, and omitting material facts required to be stated therein or necessary to make the statements contained therein not misleading. 1. Nomura Credit 48. Defendant Nomura Credit was formed in June 1998 as a subsidiary of Nomura Holding. As stated in the Prospectus Supplement for the NHELI Securitization, Nomura Credit began purchasing residential loans in 2002 and began actively securitizing residential mortgage loans in April According to the Prospectus Supplement for the NHELI Securitization, as of February 2007, Nomura Credit had purchased in excess of $33.35 billion in residential mortgage loans. 49. Defendant Nomura Credit was the sponsor for each of the Securitizations. In that capacity, Nomura Credit determined the structure of the Securitizations, initiated the 16

21 Securitizations, purchased the mortgage loans to be securitized, determined distribution of principal and interest, and provided data to the credit rating agencies to secure ratings for the GSE Certificates. Nomura Credit also selected NAA or NHELI as the special purpose vehicles that would be used to transfer the mortgage loans from Nomura Credit to the trusts, and selected Nomura Securities or Greenwich (now RBS Securities) as the underwriter for the Securitizations. In its role as sponsor, Nomura Credit knew and intended that the mortgage loans it purchased would be sold in connection with the securitization process, and that certificates representing such loans would be issued by the relevant trusts. 50. Nomura Credit also conveyed the mortgage loans to NAA or NHELI, to serve as depositor, pursuant to a Mortgage Loan Purchase Agreement. In these agreements, Nomura Credit made certain representations and warranties to NAA and NHELI regarding the groups of loans collateralizing the Certificates. These representations and warranties were assigned by NAA and NHELI to the trustees for the benefit of the Certificateholders. 2. NAA 51. Defendant NAA has been engaged in the purchase of mortgage loans since its incorporation in It is a special purpose entity formed solely for the purposes of purchasing mortgage loans, filing registration statements with the SEC, forming issuing trusts, assigning mortgage loans and all of its rights and interests in such mortgage loans to the trustee for the benefit of the certificateholders, and depositing the underlying mortgage loans into the issuing trusts. It is an affiliate of Nomura Credit. 52. NAA was the depositor for the NAA 2005-AR6 Securitization. In its capacity as depositor, NAA purchased the mortgage loans collateralizing that Securitization from Nomura Credit (as sponsor) pursuant to a Mortgage Loan Purchase Agreement. NAA then sold, transferred, or otherwise conveyed the mortgage loans to be securitized to the trust. NAA, 17

22 together with the other Defendants, also was responsible for preparing and filing the Registration Statement pursuant to which the Certificates were offered for sale. The trust in turn held the mortgage loans for the benefit of the Certificateholders, and issued the Certificates in public offerings for sale to investors such as Fannie Mae. 3. NHELI 53. Defendant NHELI has been engaged in the purchase of mortgage loans since its incorporation in Like NAA, NHELI is a special-purpose entity formed for the sole purposes of purchasing mortgage loans, filing registration statements with the SEC, forming issuing trusts, assigning mortgage loans and all of its rights and interests in such mortgage loans to the trustee for the benefit of the certificateholders, and depositing the underlying mortgage loans into the issuing trusts. It is an affiliate of Nomura Credit. 54. NHELI was the depositor for six of the seven Securitizations. In its capacity as depositor, NHELI purchased the mortgage loans from Nomura Credit (as sponsor) pursuant to a Mortgage Loan Purchase Agreement. NHELI then sold, transferred, or otherwise conveyed the mortgage loans to be securitized to the trusts. NHELI, together with the other Defendants, also was responsible for preparing and filing the Registration Statements pursuant to which the Certificates were offered for sale. The trusts in turn held the mortgage loans for the sole benefit of the Certificateholders, and issued the Certificates in public offerings for sale to investors such as Fannie Mae and Freddie Mac. 4. Nomura Securities 55. Defendant Nomura Securities was founded in 1969 and is a subsidiary of Nomura Holding. Nomura Securities is an SEC-registered broker-dealer. 56. Defendant Nomura Securities was the lead or co-lead underwriter for three of the Securitizations, and the selling underwriter for two of those Securitizations. It was responsible 18

23 for underwriting and managing the offer and sale of the Certificates to Fannie Mae and Freddie Mac and other investors. Nomura Securities also was obligated to conduct meaningful due diligence to ensure that the Registration Statements did not contain any material misstatements or omissions, including as to the manner in which the underlying mortgage loans were originated, transferred, and underwritten. 5. RBS Securities 57. Defendant RBS Securities, known as Greenwich prior to April 2009, was founded in 1981 and was acquired by The Royal Bank of Scotland Group PLC in At all relevant times, Greenwich was a registered broker-dealer and one of the leading underwriters of mortgage and other asset-backed securities in the United States. 58. Greenwich was one of the nation s largest underwriters of asset-backed securities. In 2006, Inside Mortgage Finance ranked Greenwich as the fourth largest non-agency mortgagebacked securities underwriter, underwriting over $102 billion of mortgage-backed securities. 5 In 2007, Greenwich remained a strong force as the third largest subprime underwriter of nonagency mortgage-backed securities, underwriting over $19 billion of mortgage-backed securities. 59. Greenwich was the lead or co-lead underwriter for four of the Securitizations, and the selling underwriter for those Securitizations. It was responsible for underwriting and managing the offer and sale of the Certificates to Fannie Mae and Freddie Mac and other investors. Greenwich also was obligated to conduct meaningful due diligence to ensure that the Registration Statements did not contain any material misstatements or omissions, including as to 5 Agency mortgage-backed securities are guaranteed by a government agency or government-sponsored enterprise such as Fannie Mae or Freddie Mac, while non-agency mortgage-backed securities are issued by banks and financial companies not associated with a government agency or government-sponsored enterprise. 19

24 the manner in which the underlying mortgage loans were originated, transferred, and underwritten. 6. Nomura Holding 60. Nomura Holding employed its wholly owned subsidiaries, Nomura Credit, NAA, NHELI, and Nomura Securities, in the key steps of the securitization process. Unlike typical arms length transactions, the Securitizations here involved various Nomura subsidiaries and affiliates at virtually each step in the chain. For all seven Securitizations, the sponsor was Nomura Credit, and the depositor was NAA or NHELI. In addition, for three Securitizations, the lead or co-lead underwriter was Nomura Securities. Nomura Holding profited substantially from this vertically integrated approach to mortgage-backed securitization. 61. As the corporate parent of Nomura Credit, NAA, NHELI, and Nomura Securities, Nomura Holding had the practical ability to direct and control the actions of Nomura Credit, NAA, NHELI, and Nomura Securities related to the Securitizations, and in fact exercised such direction and control over the activities of these entities related to the issuance and sale of the Certificates. 7. The Individual Defendants 62. Defendant N. Dante Larocca was a Managing Director at Nomura Securities and the President and Chief Executive Officer of NHELI. Mr. Larocca signed or authorized another to sign on his behalf two Shelf Registration Statements (applicable to six Securitizations) and the amendments thereto. 63. Defendant David Findlay was a Senior Managing Director and the Chief Legal Officer of Nomura Holding and Nomura Securities. Mr. Findlay also served as a Director of both NAA and NHELI. Mr. Findlay signed or authorized another to sign on his behalf all three Shelf Registration Statements and the amendments thereto. 20

25 64. Defendant Nathan Gorin was Controller and Chief Financial Officer of Nomura Securities, NAA, and NHELI. Mr. Gorin signed or authorized another to sign on his behalf all three Shelf Registration Statements and the amendments thereto. 65. Defendant John P. Graham was a Managing Director at Nomura Credit and the President and Chief Executive Officer of NAA. Mr. Graham signed or authorized another to sign on his behalf one Shelf Registration Statement (applicable to one Securitization) and the amendment thereto. 66. Defendant John McCarthy was a Director of both NAA and NHELI. Mr. McCarthy signed or authorized another to sign on his behalf all three Shelf Registration Statements and the amendments thereto. B. Defendants Failure To Conduct Proper Due Diligence 67. The Defendants failed to conduct adequate and sufficient due diligence to ensure that the mortgage loans underlying the Securitizations complied with the representations in the Registration Statements. 68. During the time period in which the Certificates were issued approximately 2005 through 2007 Nomura s involvement in the mortgage-backed securitization market was rapidly expanding. In an effort to increase revenue and profits, Nomura vastly expanded the volume of mortgage-backed securities it issued as compared to prior years. According to the Prospectus Supplement for the NHELI Securitization, Nomura Credit initially securitized a relatively small volume of mortgage loans about $687 million in In 2004, however, the volume of mortgage loans that Nomura Credit securitized nearly tripled to $2.4 billion. In 2005, the volume tripled again to $7.2 billion. In 2006, Nomura Credit securitized its largest volume of mortgage loans $10 billion. 21

26 69. Defendants had enormous financial incentives to complete as many offerings as quickly as possible without regard to ensuring the accuracy or completeness of the Registration Statements, or conducting adequate and reasonable due diligence. For example, NAA and NHELI, as the depositors, were paid a percentage of the total dollar amount of the offerings upon completion of the Securitizations, and Nomura Securities and Greenwich (now RBS Securities), as the underwriters, were paid a commission based on the amount they received from the sale of the Certificates to the public. 70. The push to securitize large volumes of mortgage loans contributed to the absence of controls needed to prevent the inclusion of untrue statements of material facts and omissions of material facts in the Registration Statements. In particular, Defendants failed to conduct adequate diligence or otherwise to ensure the accuracy of the statements in the Registration Statements pertaining to the Securitizations. 71. For instance, Nomura retained third-parties, including Clayton Holdings, Inc. ( Clayton ), to analyze the loans it was considering placing in its securitizations, but waived a significant number of loans into the Securitizations that these firms had recommended for exclusion, and did so without taking adequate steps to ensure that these loans had in fact been underwritten in accordance with applicable guidelines or had compensating factors that excused the loans non-compliance with those guidelines. On January 27, 2008, Clayton revealed that it had entered into an agreement with the New York Attorney General (the NYAG ) to provide documents and testimony regarding its due diligence reports, including copies of the actual reports provided to its clients. According to The New York Times, as reported on January 27, 2008, Clayton told the NYAG that starting in 2005, it saw a significant deterioration of lending 22

27 standards and a parallel jump in lending expectations and some investment banks directed Clayton to halve the sample of loans it evaluated in each portfolio. 72. Nomura was negligent in allowing into the Securitizations a substantial number of mortgage loans that, as reported to Nomura by third-party due diligence firms, did not conform to the underwriting standards stated in the Registration Statements, including the Prospectuses and Prospectus Supplements. Even upon learning from the third-party due diligence firms that there were high percentages of defective or at least questionable loans in the sample of loans reviewed by the third-party due diligence firms, Nomura failed to take any additional steps to verify that the population of loans in the Securitizations did not include a similar percentage of defective and/or questionable loans. 73. Clayton s trending reports revealed that in the period from the first quarter of 2006 to the first quarter of 2007, percent of the mortgage loans Nomura submitted to Clayton to review in residential mortgage-backed securities groups were rejected by Clayton as falling outside the applicable underwriting guidelines. Of the mortgage loans that Clayton found defective, 58 percent of the loans were subsequently waived in by Nomura without proper consideration and analysis of compensating factors and included in securitizations such as the ones in which Fannie Mae and Freddie Mac invested here. See Clayton Trending Reports, available at Defendant NHELI is presently defending an action in the U.S. District Court for the District of Kansas brought in June 2011 by the National Credit Union Administration Board, as Liquidating Agent of U.S. Central Federal Credit Union, against it and a number of other defendants. The plaintiffs have asserted claims under Sections 11 and 12(a)(2) of the Securities 23

28 Act of 1933 for misrepresentations made in connection with various securitizations, including the NHELI Securitization at issue here. National Credit Union Administration Board v. RBS Securities, Inc., No. 11-cv-2340 (D. Kan.). 75. On or about March 13, 2008, after a seven-month investigation requested by the President of the United States, a working group led by the Secretary of Treasury and including the chairmen of the Federal Reserve Board, the SEC, and the Commodities Futures Trading Commission, issued a report finding: (i) a significant erosion of market discipline by those involved in the securitization process, including originators, underwriters, and credit rating agencies, related in part to failures to provide or obtain adequate risk disclosures; and that (ii) the turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for United States subprime mortgages. See Policy Statement on Financial Market Developments, The President s Working Group on Financial Markets, March 2008, available at III. The Registration Statements and the Prospectus Supplements A. Compliance With Underwriting Guidelines 76. The Prospectus Supplement for each Securitization describes the mortgage loan underwriting guidelines pursuant to which the mortgage loans underlying the related Securitization were to have been originated. These guidelines were intended to assess the creditworthiness of the borrower, the ability of the borrower to repay the loan, and the adequacy of the mortgaged property as security for the loan. 77. The statements made in the Prospectus Supplements, which, as discussed, formed part of the Registration Statement for each Securitization, were material to a reasonable investor s decision to purchase and invest in the Certificates because the failure to originate a 24

29 mortgage loan in accordance with the applicable guidelines creates a higher risk of delinquency and default by the borrower, as well as a risk that losses upon liquidation will be higher, thus resulting in a greater economic risk to an investor. 78. The Prospectus Supplements for the Securitizations contained several key statements with respect to the underwriting standards of the entities that originated the loans in the Securitizations. For example, the Prospectus Supplement for the NHELI 2006-FM1 Securitization, for which Fremont was the originator, Nomura Credit was the Sponsor, NHELI was the depositor, and Nomura Securities was the underwriter, stated that, All of the mortgage loans were originated or acquired by Fremont, generally in accordance with the underwriting criteria described in this section, and that Fremont s underwriting guidelines are primarily intended to assess the ability and willingness of the borrower to repay the debt and to evaluate the adequacy of the mortgaged property as collateral for the mortgage loan. 79. The NHELI 2006-FM1 Prospectus Supplement stated that underwriting exception[s] might be made on a case by case basis, but emphasized that exceptions would be based upon compensating factors, which included low loan-to-value ratio, low debt to income ratio, substantial liquid assets, good credit history, stable employment and time in residence at the applicant s current address. 80. The Prospectus Supplement also emphasized Fremont s quality control procedures: Fremont conducts a number of quality control procedures, including a cost-funding review as well as a full re-underwriting of a random selection of loans to assure asset quality. Under the funding review, all loans are reviewed to verify credit grading, documentation compliance and data accuracy. Under the asset quality procedure, a random selection of each month s originations is reviewed. The loan review confirms the existence and accuracy of legal 25